In This Issue...

Report Reflects Entitlement Difficulties

The annual report issued Monday by the trustees of Medicare and Social Security underscores the unsustainable nature of both programs in their current forms. The troubling data in the report also demonstrate the need for comprehensive fiscal reform as soon as possible.

“With the aging of the population and the continuing rise in health care costs, we know that Medicare and Social Security will place increasing demands on the federal budget,” says Robert L. Bixby, Concord’s executive director. “These programs are of critical importance to Americans of all ages, but this year’s trustees report -- like its predecessors -- makes clear that significant changes in both programs need to be made.”

Public attention should focus on the cash flows in these programs rather than trust-fund balances that are sometimes cited as reassuring. The trustees report, for example, that Social Security’s negative cash flows add to the federal deficit despite the positive trust fund balance. Social Security and Medicare had a total cash deficit of $403 billion last year.

“The trust fund balances are simply an internal government bookkeeping mechanism,” Bixby said. “They say how much the government owes itself. But these balances, and the various projections about them, tell us nothing about where the government might find the additional money to pay for all of the entitlement programs’ commitments in the years ahead.”

The number of beneficiaries in Social Security and Medicare is rising rapidly and will continue doing so. From 2011 to 2012, Social Security will add 1.5 million beneficiaries while Medicare will add 2 million. Meanwhile, health care costs are expected to grow more rapidly than the economy even under optimistic assumptions about health care reform.

Ideally, responsible changes in the entitlement programs should be part of a broader program of fiscal reform throughout the federal budget. “Everyone may think that their cow is sacred,” Bixby said, “but in fact there can be no sacred cows in the search for solutions.”

Combine Best of Budget Plans

Budgets proposed by President Obama and House Budget Chairman Paul Ryan have received considerable attention in Washington this year. But both have serious shortcomings and lack bipartisan support.

“Budgets that fail to make tough compromises between Democrats and Republicans may please the party faithful,” says Robert L. Bixby, executive director of The Concord Coalition. “But they won’t get us out of the deep fiscal hole both parties have had a hand in digging.”

In fact, he argues in a recent Politico op-ed, the Obama and Ryan budgets illustrate that the compromise proposals developed by the chairmen of the President’s bipartisan fiscal commission, Erskine Bowles and Alan Simpson, were on target – and deserve more consideration than they have received since their release in late 2010.

Obama’s budget relies on both spending cuts and tax increases to bring the deficit down. But Bixby says it stops short “of the structural changes needed to keep the debt from again rising to unsustainable levels” and is, at best, “a stopgap.”

Ryan’s plan claims to reduce the deficit more quickly, with policies that would keep the deficit from eventually rising again. But Bixby says this plan relies on implausible assumptions, notably that popular tax subsidies and spending on everything other than the big entitlement programs and defense “would virtually disappear.”

Bixby says a compromise that included the strengths of both plans isn’t too hard to imagine: Democrats would have to agree to a structural change to reduce future spending in Medicare, and Republicans would have to agree to use some new revenue from tax reform for deficit reduction. But doing one without the other, Bixby cautions, “is a political nonstarter.”

Conrad Offers Constructive Proposal

Senate Budget Committee Chairman Kent Conrad has proposed a sweeping fiscal reform plan based on the recommendations of a bipartisan majority of the President’s fiscal commission. The Concord Coalition applauds Conrad’s proposal, as it did a recent bipartisan plan in the House that would also follow through on the commission’s work.

“The easy course for Senator Conrad would have been to simply lay out one more partisan budget plan for Washington to argue over,” says Robert L. Bixby, Concord’s executive director. “Instead, he is doing something far more valuable. He is laying down a nonpartisan marker that was supported by a bipartisan majority on the President’s commission and a bipartisan group of House members, and encouraged by a bipartisan group of 64 in the Senate. This ambitious deficit-reduction plan would put the country on a more responsible course without jeopardizing the economic recovery.”

The plan, developed by members of the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles), puts everything on the table: defense, regular domestic spending, the entitlement programs and taxes.

Conrad (D-N.D.) introduced his proposal at a Senate Budget Committee meeting Wednesday. However, no amendments were considered and no votes were taken. Conrad said he hoped the proposal could serve as a starting point for discussions over a long-term budget plan later this year, perhaps after the election. The chances of passing such a plan now, he said, were “slim.”

Some lawmakers in both parties praised his budget plan. But Republicans on the committee expressed disappointment that no further action on it was planned soon, with Ranking Member Jeff Sessions (R-Ala.) saying that Conrad’s fellow Democrats were seeking to avoid difficult public votes.

Republicans also hammered at Democratic resistance to approving a budget resolution for the coming fiscal year. Democrats say that is unnecessary because of spending levels set in last summer’s law raising the debt limit, and Senate Majority Leader Harry Reid has said the Senate will not take up a budget resolution this year. Concord has urged the Senate to do so.

Bipartisan Bills Tackle Waste and Duplication

Bipartisan legislation to address waste and duplication in federal programs was introduced last week in the House and Senate. Sponsored by Senators Tom Coburn (R-Okla.) and Mark Udall (D-Colo.) as well as Representatives Jim Cooper (D-Tenn.), James Lankford (R-Okla.), and Sue Myrick (R-N.C.), the legislation would require the Congressional Research Service to analyze each bill considered by Congress to determine whether it would duplicate existing federal programs.

The Government Accountability Office (GAO) has identified billions of dollars that could be saved each year by eliminating federal programs where duplication, overlap or fragmentation exists. In 2011 GAO identified 81 separate areas where duplication could be eliminated and this year GAO identified an additional 51 areas.

Tackling waste in government is a necessary first step in reducing our debt because it could build public trust and support for difficult decisions ahead on issues such as tax and entitlement reform. The legislation introduced last week is a fiscally responsible proposal that could aid in this task.